Negative Interest Rate

Much like the general term “interest rates,” the phrase negative interest rates can refer to a few different things. In the context of a central bank instituting negative interest rates, it typically means that the central bank has created a rule whereby banks that deposit their own money with the central bank have to pay a fee to do so (in normal times, those banks would expect to receive interest payments from the central bank, much as you would expect to receive interest in your bank account). The idea is that banks will choose to lend out the money to people and businesses instead of keeping it with the central bank. The phrase “negative interest rates” is also sometimes used to describe a scenario where bonds are trading at such a high price that an investor who buys them is guaranteed to lose money if they were to hold the bond until it expires. This should really be termed “negative yields,” but the term “negative interest rates” is often used interchangeably (note: such bonds often trade at such high prices because central banks are directly buying the bonds, thus driving up their price).